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Multiple Choice
Which of the following types of interest fluctuates over time as the market interest rates change?
A
Compound interest
B
Variable interest
C
Simple interest
D
Fixed interest
Verified step by step guidance
1
Understand the concept of interest: Interest is the cost of borrowing money or the return on investment for lending money. It can be categorized into different types based on how it is calculated or how it behaves over time.
Review the definition of fixed interest: Fixed interest remains constant throughout the term of the loan or investment, regardless of changes in market interest rates.
Review the definition of variable interest: Variable interest fluctuates over time based on changes in market interest rates. It is tied to an index or benchmark rate, such as the prime rate or LIBOR.
Compare variable interest with other types of interest: Compound interest and simple interest refer to methods of calculating interest, not how it fluctuates. Fixed interest does not change, while variable interest adjusts with market conditions.
Conclude that the correct answer is variable interest, as it is the type of interest that changes over time in response to market interest rate fluctuations.